Forget Tesla and buy this great auto stock instead

The new year hasn’t been so kind tesla (TSLA -3.50%) and its shareholders. The electric vehicle (EV) maker reported disappointing fourth-quarter results in January. And as of March 1, stock prices are expected to fall 18% in 2024.

In addition to declining profitability, Tesla is also grappling with weaker demand.of EV stock It’s currently 50% off its all-time high, and some opportunistic investors are looking to buy on the dip.

But before you do that, it’s best to consider another car inventory Instead.

Not an ordinary car company

Investors certainly know better ferrari (Race -0.21%). The luxury automaker designs and produces some of the world’s most expensive cars, heavily influenced by the company’s long-standing racing tradition. It’s not uncommon for new models to cost him more than $400,000, and limited editions and limited editions cost him seven figures.

Not many people can afford these things. As a result, Ferrari doesn’t make or sell as many. In 2023, he expects 13,663 cars to be delivered to customers, a figure that seems shockingly low at first glance.

But let me be clear: this has nothing to do with lack of demand. Management intentionally keeps sales volumes low in order to maintain the company’s status as a true luxury brand.No wonder about Ferrari gross profit The average performance over the past five years is an excellent 50.5%. Exclusivity has great pricing power.

Last year, the business’ revenue and adjusted earnings per share grew 17.2% and 35.6%, respectively. Stable sales and increased bottom line profits are the norm.

What’s even more surprising is that investors can expect solid financial results no matter what the macroeconomic situation is. Since Ferrari targets the ultra-wealthy as its customers, the recession scenario has minimal negative impact on the company. Even when times get tough, these select people still have the financial wherewithal to spend hundreds of thousands of dollars on a new car as a collector’s item.

hit a speed bump

You’d be hard-pressed to find a stock that has done better than Tesla over the past decade. The company’s stock price has soared 1,140% since the beginning of 2014. This has been possible because the company’s focus on innovation, technology, and manufacturing excellence has enabled it to disrupt outdated industries.

However, despite all of its accomplishments, Tesla cannot escape the challenges it currently faces. Rising interest rates and increased competition have forced management to repeatedly reduce the prices of its models. As a result, margins have shrunk.

To make matters worse, fourth-quarter revenue increased just 3%, a far cry from the impressive growth recorded just two quarters earlier. Recent trends highlight how sensitive Tesla is to macro factors, but Ferrari doesn’t really need to worry.

Rating is very important

Ferrari’s stock price has soared 232% over the past five years and continues to hit new all-time highs. In his first two months of 2024 he increased by 26%.

I don’t think this stock will be ignored anymore. The market is well aware that this is a truly exceptional business.

This is clear when you look at the valuation. Ferrari is Future price/earnings ratio (PER) 51.4. This is definitely expensive. And I believe this fully factors in investors’ positive perception of the company’s pricing power, growth potential, and profitability. But Ferrari is still cheaper than Tesla. Tesla’s forward P/E ratio is 63.4 times.

Value-conscious investors may not think Ferrari is a smart buy. But if you’re someone who values ​​owning one of the best companies in the world above all else, valuations may not deter you one bit from buying the stock.